Ryan Nash: Got it. And, Rich, if you put late fees aside for the first part of my question, you talked about stable to modest improvement which ex-late fees would imply continued improvement on the operating efficiency. Do you think we’re back ex-late fees on a sustained journey of improving efficiency, like you were talking about before the pandemic? And then second, just how are you thinking about the timing of offsetting late fees? Thank you.
Richard Fairbank: Yeah. Thank you. So the — our story about efficiency, I think, has been a very consistent story for a bunch of years and I think a lot of companies drive efficiency by just continuing to cut costs on their way to greatness. And we certainly put a lot of energy into the cost side of our business, but really it’s been about building a business model powered by technology and the customer experiences we’re building to drive revenue growth and efficiency and both at the same time. And we’ve talked about how so much of this is powered by technology and we continue to see the benefits of that. So we — at this, on the one hand, keep leaning into technology and keep investing there. And on the other hand, see a — growing opportunities to drive efficiency as a beneficiary of the technology investments.
So, pulling way up, while any particular year can be different from overall trends. We continue to believe that an important part of the value proposition with investors and the benefit of the years of investment we’re making is to continue to drive greater operating efficiency. So, did you have a CFPB question? Yes. So let me turn, Ryan, to talk about that. So the CFPB’s late fee proposal as currently contemplated would reduce late fees by approximately 75%. While the CFPB’s proposal has not been finalized, we expect the CFPB to publish a proposal soon. And once the CFPB publishes its final rule, we expect there to be industry litigation that could delay or block the implementation of the rule. This litigation will likely delay the implementation of the rule until at least the second half of this year and maybe longer.
You saw we talked about an estimate of October. If the proposed rule is implemented, there will be a significant impact to our P&L in the near term relative to what our path would have been. However, we have a set of mitigating actions that we’re working through that we believe will gradually resolve this impact, a couple of years after the rule goes into effect. And these choices include changes to our policies, our products, and investment choices. Some of these actions will take place before the rule change takes effect and a few are already underway, many will come after the rule change takes effect.
Jeff Norris: Next question, please.
Operator: Our next question comes from the line of Arren Cyganovich with Citi. Your line is open.
Arren Cyganovich: Thanks. I was hoping you talk a little bit about the auto business. You continue to kind of pull back a little bit from that side, thinking about how you’re feeling about potentially increasing some originations. Still a healthy amount of originations at $27 billion this year, but just wondering when you might make a pivot there.
Richard Fairbank: Thanks, Arren. So, we’ve been cautious in auto for a couple of years now. We’ve noted over this period of time, a number of headwinds in the business. So — but let’s tally them up. Margin pressure from the interest-rate cycle, normalizing credit, vehicle values normalizing from their all-time highs, and affordability pressures stemming from the combined effects of elevated interest rate and still high car prices0. As you know we don’t work backward from growth target and we remain disciplined in our originations, setting pricing and terms that we’re comfortable with and then take what the market gives us. So back in 2022, we raised price, tightened our credit box at the low end of the market, and took other steps to manage the resilience of our lending.
As a result, our run rate of originations has been lower than like two years ago. But as a result of our actions, we’ve been just very pleased with the performance of our auto originations. The credit performance has been really striking, which of course you can see. So even as vehicle values continue to normalize, risk on our most recent originations from 2023 remains below what we saw in our pre-pandemic originations, probably is the result of our actions. And vintage over vintage, that risk remains stable. The margins on new originations have improved as well, particularly over the last couple of months as interest rates have come down from their recent peaks. So we feel quite good about the performance of our auto originations. So we continue to adjust our strategies where we see opportunities for growth or emerging risks.
But of course, that’s what we always do. But when we think about some of the headwinds, I think some of those headwinds are easing, and the results that we’re seeing on our own books are really pretty striking and gratifying. So, that gives us a more bullish outlook, still with a note of caution.
Arren Cyganovich: Thank you.
Jeff Norris: Next question, please.
Operator: Our next question comes from the line of Rick Shane with J.P. Morgan. Your line is open.
Rick Shane: Thanks for taking my questions this afternoon. Hey, Rich, you’ve given some framework for charge-offs into ’24. One of the observations we would make is that delinquencies even through December on a year-over-year basis due are trending, are up on a year-over-year basis, even though that increase has slowed substantially. That suggests and very consistent with your description that charge-offs will continue to rise through the first half of the year. What I’m curious about is, given that delinquencies are still up 100 basis points or 115 basis points year-over-year in December, when we look into the second half of the year, I understand, seasonally, that they will be down. But would you expect the charge-offs in the second half of the year will still be up versus ’23?
